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This report provides a synthesis review of a set of incentive-based instruments that have been employed to varying degrees around the world. It is part of an effort by The Rockefeller Foundation to improve understanding of both the potential of these instruments and their limitations. The report is divided into five sections. Section 1 provides an introduction to the synthesis review. Section 2 describes the research methodology. Section 3 provides background on policy instruments and detail on three incentive-based instruments -- water trading, payment for ecosystem services, and water quality trading -- describing the application of each, including their environmental, economic, and social performances, and the conditions needed for their implementation. Section 4 highlights the role of the private sector in implementing these instruments, and Section 5 provides a summary and conclusions.

Water quality trading programs offer many benefits, including facilitating greater cooperation among stakeholders within a watershed, reducing the costs of water pollution management, and providing ancillary environmental benefits not otherwise realized through traditional command-and-control approaches. Developing a successful program is a delicate balance--the underlying regulatory framework cannot be overly conservative. While a degree of safety/conservatism is necessary, there must also be a willingness and acceptance of some degree of uncertainty/flexibility to allow for the market-based aspects of a trading program to flourish and produce environmental benefits at reduced costs.

Water is an essential good for human life but there is controversy on whether it should be allocated using markets. In 1966, the irrigation community in Mula (Murcia, Spain) switched from a market institution, an auction which had been in place in the town for over 700 years, to a system of fixed quotas with a ban on trading to allocate water from the town's river. We present a model in which farmers face liquidity constraints (LC) to explain why the new, non-market institution is more efficient. We show that farmers underestimate water demand in the presence of LC. We use a dynamic demand model and data from the auction period to estimate both farmers' demand for water and their financial constraints, thus obtaining unbiased estimates. In our model, markets achieve the first-best allocation only in the absence of LC. In contrast, quotas achieve the first-best allocation only if farmers are homogeneous in productivity. We compute welfare under both types of institutions using the estimated parameters. We find that the quota is more efficient than the market. This result implies that one should be cautious in advocating for water markets, especially in developing areas where LC might be a concern.

Medford, OR's wastewater treatment plant, the Regional Water Reclamation Facility (RWRF), serves 170,000 customers in southern Oregon's Rogue watershed. Data shows the population increasing to over 204,600 in 2020. Although the RWRF discharges treated effluent, as population grows and requirements get tighter, it has the potential to exceed its temperature or thermal limits, especially during low-flow periods in the fall. To keep this from happening, RWRF plant engineers studied several solutions, including installing mechanical chillers and storing treated wastewater in an expanded pit. If the city had decided to upgrade the wastewater treatment facility, the cost would have totaled about $16 million.
Instead, the city signed a $6.5 million contract with the Freshwater Trust, a not-for-profit river restoration organization. Medford chose water-quality trading to solve the projected exceedance of thermal load and the Trust was hired to implement and maintain the ongoing 20-year project. The Rogue River draws native coldwater fish, including Chinook salmon and steelhead trout. They are listed as "threatened" under the Federal Endangered Species Act and, the two species are adversely affected by warm water. The Rogue River is also used for recreation, with participants taking jet boat tours, white­water rafting, and kayaking.
The water-quality trading program adapted by the Trust features riparian restoration -- that is, planting and maintaining trees and shrubs along the banks of the Rogue and its tributaries. This streamside vegetation on 10 -- 15 miles of the river will cool the water temperature by blocking solar load in this ongoing project, according to the plan.

This book compares water allocation policy in three rivers under pressure from demand, droughts and a changing climate: the Colorado, Columbia and Murray-Darling. Each river has undergone multiple decades of policy reform at the intersection of water markets and river basin governance - two prominent responses to the global water crisis often attempted and analyzed separately. Drawing on concepts and evidence about property rights and transaction costs, this book generates lessons about the factors that enable and constrain more flexible and sustainable approaches for sharing water among users and across political jurisdictions.Despite over 40 years of interest in water markets as a solution to water scarcity, they have been slow to develop. Intensified competition has also stimulated interest in river basins as the ideal unit to manage conflicts and tradeoffs across jurisdictions, but integration has proven elusive. This book investigates why progress has been slower and more uneven than expected, and it pinpoints the principles and practices associated with both successes and failures. Garrick synthesizes theoretical traditions in public policy and institutional economics, to examine the influence of path dependency and transaction costs on water allocation reform. Using evidence from historical sources, public policy analysis and institutional economics, the book demonstrates that reforms to water rights and transboundary governance arrangements must be combined and complementary to achieve lasting success at multiple scales.The original approach of this book, and its comparison of three prominent sites of reform, makes it an asset to practitioners of water policy, as well as water governance scholars and academics in public policy and economics who are focused on environmental policy, property rights and institutional change.

Five years ago Medford, Oregon, had a problem common for most cities -- treating sewage without hurting fish. The city's wastewater treatment plant was discharging warm water into the Rogue River. Fish weren't dying, but salmon in the Rogue rely on cold water. And the Environmental Protection Agency has rules to make sure they get it.
So, instead of spending millions on expensive machinery to cool the water to federal standards, the city of Medford tried something much simpler: planting trees. It bought credits that paid others to handle the tree planting, countering the utility's continued warm-water discharges. Shady trees cool rivers, and the end goal is 10 to 15 miles of new native vegetation along the Rogue.

The WHO/UNICEF Joint Monitoring Program was established in 1990 and has monitored progress on global safe drinking water and sanitation targets since the Millennium Development Goals were launched in 2000. As the MDG era comes to a close, this report shows how far we have come and how far we still have to go, presenting updated global statistics and disparities by region and wealth. The report also gives an overview of the JMP's work creating, implementing, and expanding WASH monitoring systems over the past 25 years.

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